Jobs Report Not So Bad When Paired With Other Data

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. We're a week after the very disappointing jobs report. I'm here with Bob Johnson, our director of economic analysis, to look at some other jobs data, to see if things are really quite that bad.

Bob, thanks for joining me.

Bob Johnson: It is great to be here today.

Glaser: So, the big piece of data we have is this JOLTS report on job openings and turnover from the Labor Department. When you look at this report, do you think the jobs market is as bad as that 38,000 jobs seems to imply?

Johnson: Absolutely not. I mean, this report showed an increasing number of job openings and certainly, that can still be a problem because if you haven't got skilled workers in the right places at the right wage to fill those jobs, you're still not going to grow and you're still not going to get people hired and move the economy along. So, it's still a problem, but it would seem to indicate that the problem is more of one of not enough workers, not that there are not enough jobs.

Glaser: Now, one of the sectors that was weak in the report last week was construction. There are signs that's still potentially a problem area?

Johnson: You know, there are some very interesting data points that are starting to support each other saying that something had slowed in construction and it's probably not in the residential housing side. But certainly in the JOLTS report we had a situation where the openings were down, the hires were down and the quits were down and that's certainly not a positive situation. We kind of got all of those and it was a bad number in Friday's report. So, you got everything kind of lined up that something may be softening there a little bit.

Now, one thing that kind of gives us a little hope on that construction front is certainly that we maybe had some stronger data early in the winter months and then people didn't have the big surge and therefore, we didn't have that--there was a big seasonal adjustment factor in there and maybe that's a little bit of what's going on in the number. So, again, the data has been pretty consistent that it's just not as strong as it was in the first quarter, although we have seen a lot of revisions to the first quarter construction numbers that look a lot better.

Glaser: So, when you look at manufacturing though, another weak sector, you think that the data maybe is not so one-directional.

Johnson: Yes. The JOLTS report seems to say, no, there's something wrong with last Friday's report because you have a situation where hires were up, openings were up and quits were down; clearly, not a situation where anybody is worried about a slowing which kind of surprised me and it was probably more in nondurables, but I mean, even in the durable goods it was present. So, it seems like maybe the construction number wasn't quite as bad in that report as one might have guessed.

Glaser: The manufacturing number.

Johnson: The manufacturing number, yes.

Glaser: ADP showed that kind of as well. So, when you look at some of these other labor reports that we have outside of kind of the marquee one on that everyone focuses on, you're saying that maybe things are slowing but aren't quite as dire as that report shows?

Johnson: Absolutely. I mean, again, you get it in the form of montage. You can't take one data point by itself and this report, the last Friday's report, I should say, is one that's terribly volatile and I swear, we get about one month out of every 12 where the number just kind of out of the blue is terrible. And usually, it gets revised away in another version of the report. So, it's not quite as bad as it looked. But even still, there's usually one month of the year that looks a little silly compared to the rest. So, we've seen that pattern.

I mean, we got Challenger, Gray, another one that I like, the layoffs report was kind of near a record low at 30,000 layoffs. So, I mean, certainly, initial claims, which kind of mirror some of what Challenger, Gray says, says that people aren't firing people. So, there seems--and the ADP report suggested the numbers weren't so bad. Some of the indexes on employment in the PMI reports have been pretty good. So, there just doesn't seem to be a broad base of data that's horrible in employment and I'm guessing that report was a little bit of an accident that as I've said many times that employment needed to slow a little bit and even if we did all of the adjustments we probably would only add 150,000 to 200,000 jobs max which would still be below the trend of the previous 12 months.

Glaser: Fed chair Janet Yellen spoke on Monday, seem to take June's rate hike off the table. Anything surprising there? What do you think is next for the Fed?

Johnson: Well, I think she did pretty much what she had to do. She said this report was a concern, but a lot of their other economic data seem to say that things were better and that because of the concern and she didn't say it this way, but she kept on saying concern. Everybody implied that something probably wouldn't happen in June, but that things were strong enough that they would have to re-evaluate again in July and that's certainly being the data-driven thing it is, they will.

Glaser: So, what are the data points you think they will be looking at in the coming weeks?

Johnson: I think retail sales will be an absolutely key one. Consumption drives a lot of things and it's 70% of the GDP calculation and that's a number I think they will look very, very closely at. I think that's one that they will work on. I think they will continue to look at the labor market over time for confirming that there was any weakness and I think they will have a sharp eye on that. And I think they will keep a very close eye on wages. The Fed's Beige Book has suggested that the wage pressures are really heating up and they have got to keep an eye on that too. So, if wages kind of continue to pop which they even did in the Friday report that was so dismal otherwise, that they've got a little bit of a reason for concern and might need to raise rates.

Glaser: And are they at all focused on GDP or are they mainly looking at these other factors?

Johnson: Well, I think number one they look at, they have to look at employment which is why Friday's report took it off the table and number two, they have got to look at inflation and those are the key things that they are supposed to watch but they also keep an eye on the international situation. Do they want to do something for Brexit or whatever? That's kind of off the table now. But certainly, there's other worldwide concerns that they've shown some importance to and they keep kind of shifting a little bit what else they might look at. But the keys are supposed to be labor and inflation.

Glaser: So, things like that import/export data probably won't weigh too heavily on them?

Johnson: Well, I think that's interesting. I mean, I think the export data that we saw last week, the import and the export data, suggest the trade deficit has come in here a bit and that the first quarter GDP will likely be revised higher because of the data. And I think that's going to be something of great interest and I think that we'll be back above 1% once we see the adjustments for a very stronger and stronger than expected first quarter in construction and the import/export data, you, kind of, roll that together and I'm thinking we're going to look at a 1% to 1.5% GDP growth rate now on the next revision for the first quarter.

Glaser: Bob, as always, thanks for your take.

Johnson: Thank you. 

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.